Personal loan puts savings on the cards

CONSOLIDATING credit card debt into a personal loan can save tens of thousands of dollars, as well as years in repayments, new Canstar research revealed.

Australian Bureau of Statistics figures revealed $390 million in personal loans had been taken out for debt consolidation as of July; a number that will rise in January as people deal with post-Christmas debt and back to school costs.

Personal loans enable debt to be repaid faster, thanks to single digit interest rates on some loans, compared to an average credit card rate of around 17 per cent.

Credit card customers have two cards each on average, so Canstar crunched the numbers to find potential savings, using a case study of a consumer with two credit cards – the first a low-rate card with a $10,000 balance and 11.99 per cent repayment rate; and the other a

rewards card with a $5000 balance and 21.99 per cent rate.

Making minimum monthly repayments of $255 on the lowrate card and $132 on the rewards card, would see the former take 22 years and nine months to pay off, while the latter would take 58 years. The combined interest paid on both would surpass $57,000.

If that original $15,000 of debt was instead consolidated into an unsecured five-year personal loan with a 9.23 per cent rate (the average of Canstar’s top-rated products) and monthly repayments of $313, the total interest paid after five years would be just $3968.

“Of course, the minimum repayment on your credit cards would decrease over time, assuming you don’t (make) additional purchases,” Steve Mickenbecker, Canstar group executive, financial services. said.

“However … you could find yourself still in debt in 50 years, whereas a personal loan would see you free from the debt in five years.”